Time for the Liberals to take initiative on Toronto’s housing market: Cohn

Oblivious to B.C.’s decisiveness on the overheated housing market in Vancouver, Premier Kathleen Wynne and Finance Minister Charles Sousa are sitting firmly on the fence when it comes to dealing with Toronto’s prices.

TheStar.com
Sept. 29, 2016
By Martin Regg Cohn

Toronto’s housing hysteria reminds us that one can have too much of a good thing.

Explosive increases are not only unaffordable but unsustainable. Overpriced homes exclude young families from the market while cutting off older families from co-workers - teachers, nurses, firefighters and other members of the middle class.

This summer, while Ontario slept, British Columbia took action to protect residents of its biggest city from the perils of overheated money. By imposing a 15-per-cent tax on foreign buyers in the Greater Vancouver Region, B.C. has sent two distinct signals to the housing market.

First, the tax forces non-residents to think twice about paying a premium on an investment property. Second, it has had a calming effect on domestic house-hunters who were getting caught up in the frenzy and exacerbating the panic.

In Ontario, where the government is mostly watching from the sidelines, and washing its hands of the problem, the surge continues unabated. While B.C.’s market is cooling, Toronto housing prices are up 18 per cent from the year before.

Critics of the Vancouver tax warn about the laws of unintended consequences. But a shift of speculative money to Toronto is an unavoidable consequence of B.C.’s move.

Economists understand that foreign money will find the path of least resistance and lowest taxation. Our former Conservative finance minister in Ottawa, Joe Oliver, has publicly called for a tax on foreigners, echoing the recommendations of bank economists who say Toronto cannot afford to be the odd city out.

Unsurprisingly, realtors and developers claim such a tax would not be in the public interest (a position that dovetails neatly with their own self-interest). They argue that foreign investment is good for the local economy (not least the realtor-developer economy), and warn that a tax could deflate our housing market.

Oblivious to B.C.’s decisiveness, Premier Kathleen Wynne and Finance Minister Charles Sousa are sitting firmly on the fence. They want more information on precisely how much foreign money is flowing into Toronto, on the grounds that Vancouver’s coastal setting made it more of a magnet than the GTA has been in the past.

Fair enough. But that was then, this is now.

The longer they wait, the more pressure will build for a decisive response. And here we come to the bigger challenge facing Wynne and Sousa.

Increasingly, people on both sides of the debate are chorusing for an even more disruptive solution: Opening up more land for development, by loosening the Green Belt and the unravelling the Places to Grow Act.

It is a seductive but self-defeating argument. It assumes that there is a genuine shortage of land to develop across southern Ontario. And it ignores the impetus behind the Green Belt, which is to preserve valuable agricultural land from the irresistible pressure of surging house prices, while reducing the appeal of suburban sprawl that leads to poor planning and high energy consumption.

In fact, there is more than enough land in the supply pipeline. Intensification is the solution to many of our pricing problems. Developers continue to sit on parcels of land in anticipation of higher prices. Governments often cause undue delays in providing permits.

For all the talk from realtors about the benefits of untrammelled foreign investment, vacant developments purchased by non-residents who don’t live in them only shortchange our communities by driving up prices and creating more unlivable and undesirable sprawl.

Sousa says his finance ministry continues to study the possible impact of a tax, but he is sending mixed messages.

“It’s a matter of supply and demand,” he told reporters this week. “If we provide for greater supply, will that then initiate a reduction in pricing?”

It’s the wrong question, which leads to the wrong answer. As Sousa acknowledges, there is a 15-year inventory of land open to developers, so the claim of a supply crunch is exaggerated.

A tax on foreign purchasers might be an imperfect solution, but the perfect is the enemy of the good - and housing is an important good. A vacancy tax would also be a good way of dealing with bad outcomes.

Amid the uncertainty of an overheated housing market, there is one cold, hard fact: Loosening the Green Belt to appease developers and please homebuyers would be an irreversible mistake.

All the more reason to take the initiative now. The longer Queen’s Park perches on the fence, the harder it may be to resist the political pressures and calm market forces.